Federal Reserve vice chair Janet Yellen: ‘Low interest rates can contribute to financial bubbles’
Low interest rates can contribute to financial bubbles even if they are not a primary culprit, Janet Yellen said in her first speech as vice chair of the Federal Reserve.
photo/donkey hotey
Just as the concern rises over the international repercussions of another possible round of monetary easing by the U.S. central bank, Yellen’s comments suggested Fed officials are cognizant of the risks to its zero rate policy.
“It is conceivable that accommodative monetary policy could provide tinder for a buildup of leverage and excessive risk-taking in the financial system,” Yellen said in prepared remarks to the National Association for Business Economics.
Countries from Latin America to Asia have complained that the Federal Reserve’s push toward renewed monetary easing is unduly pushing up their currencies against the U.S. dollar, hurting their competitiveness.
Yellen, until recently the president of the San Francisco Fed and a strong dovish voice at the U.S. central bank, did not directly address the outlook for the economy or monetary policy.
Nor did she imply that the threat of bubbles, which has underpinned a string of dissents on the Federal Open Market Committee by Kansas City Fed President Thomas Hoenig, would be enough to dissuade the Fed from easing further.
Markets have all but priced in an expectation that the central bank will boost its purchase of Treasury bonds at its November meeting, an effort to prop up an ailing recovery that has left inflation at levels that some Fed officials consider dangerously low.
